Bitcoin Brings Fireworks, but Gold, Silver, and Stable Coins could be the Sleeping Giants of the Next Decade.
Hello thank you for joining, this week’s edition of Overbit’s Weekly Round Up, first starting with what we’re sure is on many people’s minds over the past few weeks - Bitcoin.
On Tuesday, 17 November, the original cryptocurrency hit its three-year peak at $18,514 - the highest BTC/USD has been since December 2017. Compared to the previous runup to these levels, it seems that many traders and investors are quite a bit more optimistic this time around, fueled by all the recent barrage of institutional interest and support from many big-time players. What once was considered a fringe idea, Bitcoin seems to be fully in the mainstream, with publicly traded companies like Paypal, MicroStrategy, and Square all taking multimillionaire dollar bets and investments into cryptocurrency and the asset itself.
Aside from the fundamentals of Bitcoin itself, it seems the ongoing economic environment - central banks printing trillions of dollars in response to the COVID-19 pandemic - has driven a ton of ‘smart’ money to find different ways to invest their money, as opposed to just sitting in FIAT currency. Whilst this runup of more than 500% for Bitcoin in 2020 is providing quite a bit of fireworks; our next story takes a look at what could be the so-called ‘sleeping giants’ of the financial world - Gold and Silver.
Today’s financial world has run amok with regards to inflations. Central banks balance sheets are ballooning in almost every major country, topping $86 trillion at the time of writing with no signs of slowing down. This issue existed long before the coronavirus, as banks have incessantly printed more ‘new’ money to pay off old debts. Still, the pandemic seems to have vastly accelerated these unsustainable financial practices.
Maleeha Bengali of RealMoney gives a great case-study in regards to the European Central Bank: “The ECB is a classic example of this madness, as even after a decade of balance sheet expansion, they failed to generate sufficient growth and now they are embarking on yet more QE and buying assets to try yet again”.
Though many new (and old) investors have their eyes on Bitcoin as the asset to buy to stave off inflation, we see all limited-supply commodities as the same bet, a point to which Bengali agrees, and even expands upon. “If Gold goes up by 10%, Silver can go up 5x that, and Bitcoin 10x that. It is all the same trade, just different ways of representing the same view, albeit with much more risk”.
To put it simply, we see no end-in-sight for this rampant inflation driven by central banks of the world. That being said, we see all precious commodities as hedges, if not escape hatches, against this type of system. Though Bitcoin may provide much more explosive gains considering it’s still a nascent technology, we would recommend against sleeping on the time-tested assets like Gold and Silver.
With so much talk of central banks, this brings us to our last story of the day - stablecoins.
For many cryptocurrency investors and traders, stablecoins are mostly an easy way to cash out profits without fully converting back into FIAT. For those of you who don’t know, a stablecoin is simply a cryptocurrency that is pegged to a traditional asset, such as FIAT, currency, or asset, or even an entire pool of assets.
Whilst most may see (and use) stablecoins as a tool for trading and investing; it seems the space won’t stop there. In an October 2019 report, the Bank for International Settlements (BIS) said this: “Stablecoins might be more capable of serving as a means of payment and store of value, and they could potentially contribute to the development of global payment arrangements that are faster, cheaper and more inclusive.”.
Being a central bank, BIS, of course, noted that there are several hurdles to jump through, such as governance, money laundering, security, privacy, and jurisdiction, to name a few.
The main takeaway is this: major banks seem to be very mindful of the stablecoin space. Unlike Bitcoin and some other cryptocurrencies, though, this mindfulness has an apparent distinction. These banks understand they can utilise, if not fully control, stablecoin networks, by either building their own, or merely housing the base asset to which the stablecoin is issued against.
In layman’s terms, this means that the future of stablecoins, although more efficient than traditional FIAT, may just be another iteration of the same-old nation backed currency. While there are still many decentralised options for stablecoins, something to take away is, it’s important to remember that almost all of these tokens are only as valuable as the underlying asset and education is paramount. As always, thanks again for reading this edition of Overbit.com’s Weekly Round Up and we hope this advice helps to guide you as a trader or investor on the best cryptocurrency to invest in 2020.